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How to Beat Putin With Natural Gas

Thought Leader: Niall Ferguson
February 23, 2022
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By Kenneth C. Griffin and Niall Ferguson

DC-3 airliner lands at Tempelhof airport in Berlin. | Niall Ferguson | Worldwide Speakers Group
DC-3 airliner lands at Tempelhof airport in Berlin. | Niall Ferguson | Worldwide Speakers Group

On June 24, 1948, Soviet forces blockaded the Allied-controlled areas of Berlin. The U.S. and U.K. responded by airlifting food and fuel from Allied airbases in western Germany. At the height of Operation Plainfare, one plane landed every 45 seconds at Tempelhof Airport. It worked. On May 11, 1949, Moscow lifted the blockade of West Berlin. Stalin blinked.

No such airlift can relieve the pressure being exerted on Ukraine by the huge military force Russia has assembled, with Russian troops entering Donetsk and Luhansk. But the principle can be applied to the broader problem raised by the Ukrainian crisis.

The foundation of Russian power today is the energy industry, which funds Russia’s foreign policy, including its formidable armed forces. Russia is an energy superpower in no small part because European consumers buy Russian gas. Europeans wagered that energy interdependence would temper Russian militarism, but instead Europe has funded the Kremlin’s rearmament. Europe would be safer if it had relied on allies for its gas.

The problem isn’t simply Europe’s energy dependence, but Russia’s use of energy to co-opt European politicians. In early February, former German Chancellor Gerhard Schroeder was nominated to join the board of Gazprom, Russia’s state-owned gas monopoly. He already sits on the board of Rosneft, Russia’s state-owned oil giant. These appointments highlight Germany’s dependence on Russian gas. Is it any surprise that Chancellor Olaf Scholz initially sought to exclude energy explicitly from any sanctions on Russia if it invaded Ukraine? He halted Nord Stream 2, the natural-gas pipeline between Russia and Germany, only after Vladimir Putin asserted the “independence” of Donetsk and Luhansk.

Since West Germany launched its Ostpolitik policy in the late 1960s, the bet that energy interdependence would produce peace involved building a network of gas pipelines. Rather than pacifying Europe, however, these pipelines empowered Russia. Without Russian energy, European citizens would struggle to get through winter. Mr. Putin has long understood the leverage this gives him.

The U.S. should encourage its European allies to reduce their reliance on Russian gas exports. The additional sanctions against Russia envisaged by the Biden administration would come at a tremendous cost to Americans without addressing the long-term source of Mr. Putin’s power. Tougher U.S. financial sanctions would only further reduce the attractiveness of the dollar as a reserve currency. Withholding U.S. technology from Russia would inflict both direct and indirect damage on American companies, which have many international competitors, not least in China.

Reducing reliance on Russian gas will require substantial investment and political will. Europe needs to replace as much Russian gas as possible with liquefied natural gas, ideally with long-term contracts to buy gas from allied countries such as the U.S. The American capacity to export liquefied natural gas is growing every year. Some European countries have already begun building substantial infrastructure to take advantage of this growth. Poland and Lithuania now no longer rely on Russian gas because they can import supplies from as far away as Australia.

The biggest laggard is, predictably, Germany. One reason is that the upfront costs of building liquefied natural gas infrastructure can be steep. Yet Russia’s supposed price advantage no longer looks so compelling. European gas currently trades at around $26 per metric million British thermal units. The price of American gas is a little over $4.

Europe could also move itself toward energy independence by adopting a more realistic approach to climate change. Germany’s decision to phase out nuclear power looks increasingly like a historic error. The European Commission’s soon-to-be-announced plan to reduce its reliance on Russian gas is past due, but “doubling down on renewables” for short-term effect is delusional.

The U.S. has a role to play, too. It needs to produce more gas, not less. Washington should recognize that the American gas industry produces a relatively clean-burning fuel that the world will need for decades. Bans on fracking are misguided and neutralize a critical economic and geopolitical advantage. The U.S. should frack more, so it has the gas needed to wean Europe off Russian pipelines.

Green-minded Europeans should also note that buying American gas would be better for the environment. In the U.S., gas companies face stricter regulations for methane capture and other environmental priorities. The Russian energy industry pays little heed to such concerns.

In addition, the U.S. should push its friends and allies to sign long-term supply agreements with Europe. Australia is a major gas producer, as is Qatar. The more sources of natural gas Europe has, the safer its energy supply will be.

Germany’s bet that importing Russian energy would promote peace in Europe has been a losing one. It is time for a new strategy. The U.S. should not have to absorb the cost of sanctions on behalf of Germany if Berlin is not willing to change its policy. Regardless of whether it comes to all-out war in Ukraine, the Russian government has shown itself to be an incorrigibly aggressive autocracy with no compunction about coercing its neighbors.

In 1948 American supplies broke the Russian stranglehold on Berlin. Today American energy can end Berlin’s dependence on Russia. If planeloads of food can get the better of Stalin, boatloads of gas can get the better of Mr. Putin.

Mr. Griffin is the founder and CEO of Citadel. Mr. Ferguson is a senior fellow at the Hoover Institution at Stanford University, and founder of Greenmantle.

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